Correlation Between Engro Polymer and Sardar Chemical

Can any of the company-specific risk be diversified away by investing in both Engro Polymer and Sardar Chemical at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Engro Polymer and Sardar Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Engro Polymer Chemicals and Sardar Chemical Industries, you can compare the effects of market volatilities on Engro Polymer and Sardar Chemical and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Engro Polymer with a short position of Sardar Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Engro Polymer and Sardar Chemical.

Diversification Opportunities for Engro Polymer and Sardar Chemical

0.1

Correlation Coefficient

Engro Polymer  Sardar Chemical

Average diversification

The 3 months correlation between Engro and Sardar is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Engro Polymer Chemicals and Sardar Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sardar Chemical Indu and Engro Polymer is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Engro Polymer Chemicals are associated (or correlated) with Sardar Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sardar Chemical Indu has no effect on the direction of Engro Polymer i.e., Engro Polymer and Sardar Chemical go up and down completely randomly.

Pair Corralation between Engro Polymer and Sardar Chemical

Assuming the 90 days trading horizon Engro Polymer Chemicals is expected to under-perform the Sardar Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Engro Polymer Chemicals is 2.16 times less risky than Sardar Chemical. The stock trades about -0.17 of its potential returns per unit of risk. The Sardar Chemical Industries is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,300  in Sardar Chemical Industries on October 8, 2024 and sell it today you would lose (22.00) from holding Sardar Chemical Industries or give up 0.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	84.21%
Values	Daily Returns

Engro Polymer Chemicals  vs.  Sardar Chemical Industries

Engro Polymer Chemicals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Polymer Chemicals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Engro Polymer sustained solid returns over the last few months and may actually be approaching a breakup point.

Sardar Chemical Indu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sardar Chemical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sardar Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Engro Polymer and Sardar Chemical

The main advantage of trading using opposite Engro Polymer and Sardar Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Engro Polymer position performs unexpectedly, Sardar Chemical can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Sardar Chemical will offset losses from the drop in Sardar Chemical's long position.

The idea behind Engro Polymer Chemicals and Sardar Chemical Industries pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Technical Analysis module to check basic technical indicators and analysis based on most latest market data.